FRIDAY, OCTOBER 21: The Bermuda economy is in uncharted waters, experiencing unpleasant financial circumstances that are the worst in living memory.

Was this something that happened, like a hurricane, that humans could not prevent or, as I think was the case, something that could have been avoided by sensible actions?  

Let’s remind ourselves of what is wrong:

• Unemployment for the first time ever;

• Tourism is at an all-time low;

• International companies are deserting Bermuda or down-sizing in a big way;

• Bermuda is a debt laden house of cards — not only government but individual debt;

• Too many people are hungry, and they are unable to pay utility bills;

• Plummeting real estate values.

We are in deep trouble, morally (think crime), economically (think jobs) and politically (think corruption). Practically everything in which the government has become embroiled in for the last few decades is in crisis — education, Social Security, healthcare, postal service, government spending, race relations, the drug war and immigration. Most, if not all, are in disarray. 

There still lingers a belief that government creates wealth and income.  But the evidence from everywhere else in the world is the complete opposite. Namely, that government destroys wealth and jobs. Why did things go wildly wrong? I believe there are three major reasons that torpedoed what was one of the best economies ever known to man.

Firstly, the recession in the US made things immensely more difficult to resolve. This has been the excuse from the Premier and to be fair, there is something in it.  We are as much a part of the US economy as Rhode Island and anything that strikes at the heart of the US economy will clearly hurt us, and it has.

But Government continues to assert  that it manages the Bermuda economy. If this was valid, events in the US would be managed by the Bermuda Government. The fact is Government does not manage the economy; this is done by thousands, even millions of people, independently making their own decisions. Government can sabotage an economy by pursuing foolish policies but I stress again that it does not manage it. The Premier is, in her own, words (in another context) “only a cog in a wheel”.

Just as important, things were going wrong well before the American recession, as our debt bomb was becoming unmanageable way before that.

Secondly, there have been major policy decisions which simply do not make sense. Probably the most important is the decision taken some years ago to implement the six-year work permit rule. Six years and out was the message to international business managers, no exceptions, no appeals, gone, get lost.  Non-Bermudians were nothing more than job thieves.

There is no way one can manage a number of key businesses with a lack of continuity of key people. First of all, key people may decide not to come to Bermuda for only 6 years. 

Or management may decide that jobs done in Bermuda can be done somewhere else.  This has undoubtedly been the case as several companies have shifted accounting or IT functions over to Canada or India or wherever such activities can be done or where key people with knowledge and information take their job (and the clients) with them. 

Jobs have simply been exported elsewhere because of an insane immigration policy.

Stating that foreign employees create jobs for Bermudians is not an issue made up by me as the evidence from elsewhere is compelling. For example, the National Federation for American Policy states that for every H-1B worker (this means a foreign professional experienced employee) hired by US technology companies, they hire 5 additional US workers. 

According to the Wall Street Journal of October 4, 2011 in Silicon Valley, California, more than half of new technology start-up firms were founded by foreign born owners.

In the UK, Tesco, Marks and Spencer and Easy Jet were all founded by immigrants and look at the numbers employed.

All of economic history suggests that societies that are open to outside influences are more creative, productive, wealthy, inventive and provide greater job opportunities. When people who create jobs are thrown out of Bermuda, it should not be a surprise that the number of existing jobs falls off a cliff.

Thirdly, two Budgets ago the Finance Minister increased payroll tax from 14 per cent to 16 per cent, an increase which she misleadingly described as a 2 per cent increase. It was, of course, an increase of one seventh or just over 14 per cent. This immediately increased the cost of labour to management and, the first principle of economics is, that when prices are increased, less will be demanded. That is exactly what happened. Employers did not employ as many workers as previously and unemployment occurred. This could have been predicted as clearly as night follows day. The Minister did reverse herself but it was too late — the damage had been done and is still being done.

The six year work permit rule and the 14 per cent increase in payroll tax were job killers, and it should have been known that they would be job killers. The politics of envy trumped rational financial discourse and the result was unemployment with all its evils of hunger, poverty and a dismal future for young people.

The older I get and the more I learn from observing politics, the more obvious it is that it’s no way to run a business — or almost anything else, for that matter. The deficiencies, absurdities, and perverse incentives inherent in the political process are powerful enough to frustrate anyone with the best of intentions. It frequently exalts ignorance and panders to it.

If I may quote again from something I said in 2001 which was published by the Wall Street Journal: “Unlike factories or hotels, international businesses are collections of people with knowledge and information that can be applied to any problem anywhere around the world. It would be easy and cheap for them to go if Bermuda became unattractive for foreign business.”

That is exactly what happened. Bermudians made too many of the people with specialised knowledge and information unwelcome, and some of the people got up and left — or never came here when they learned about an unsympathetic Immigration Department.

The fairytale ended because of a government whose understanding of how a modern sophisticated economy works was limited — even non-existent. I can hear people saying, but what about the future. We are in a hole right now, how do we get out? See Part III next week.